core-competence-framework

The core competence framework

• Core competencies are the capabilities critical for a business to achieve competitive advantage by delivering real value to customers

  • Collective learning, which is the business’s knowledge, including assets such as patents and designs as well as industry know-how, built up over time

  • Technical skills, which includes production skills, unique processes and applications of technology

• The combination of collective learning and technical skills create a unique package which forms the basis of a business’s core products

The features of core competencies

• A business may have numerous strengths, but they may not be true core competencies

  • In order to be considered core competencies, strengths must possess three key features

Features of core competencies

1. Provide broad market access

   • A core competency must apply across a range of products, services or geographic markets, not just one niche

     • Spreading the cost of building that skill or technology over many products makes it valuable and efficient

     • E.g. Sony’s expertise in miniaturised electronics led to the Walkman, then the Discman and portable radios and finally to compact digital cameras, each product benefiting from the same engineering know-how

2. Create customer value

   • The competency must directly improve something that customers care about, such as performance, reliability, ease of use, brand prestige or cost savings

     • If it doesn’t translate into a clear advantage in the market, such as higher price, greater loyalty or stronger reputation, it won’t help achieve long-term success

     • E.g. Dyson’s digital motor technology gives its vacuum cleaners consistently higher suction power and energy efficiency, features that customers recognise and will pay a premium for

3. Be difficult to imitate

   • True core competencies are a combination of specific knowledge, unique culture, protected intellectual property or complex processes that rivals can’t copy quickly or cheaply

     • If competitors can replicate strengths overnight, a business loses its advantage

     • E.g. Google’s search-ranking algorithms combine years of data-science research, a huge database of user-behaviour data and enormous server networks, components no newcomer can assemble easily or at low cost

Benefits of developing core competencies

Problems with developing core competencies

• Loss of crucial skills through outsourcing

  • Paying other firms to handle key tasks can mean losing in-house know-how needed to fix problems fast

    • E.g. Boeing outsourced large parts of its 787 Dreamliner and then struggled to solve quality issues when they arose

• Becoming outdated as markets change

  • Developing a core competency takes time and money

  • Rapid shifts in technology or tastes can make it useless

• High initial cost with no guaranteed reward

  • Large investments in new technology or processes may never pay off if rivals catch up or demand stays low

• Inflexibility

  • Over-focusing on one core competency can blind a company to new opportunities, making it slow to adapt

    • E.g Nokia stuck with its Symbian phones and was too late to the touchscreen smartphone market